Zhou Qiren: Entanglement Between "Exchange Rate Stability" And "Currency Stability"

A lot of policy objectives are different from each other, but they can be fought all the time as long as they are added together.

Related to this series of comments, we can take "exchange rate stability" and "currency stability" as an example.

Separately, exchange rate stability is worth pursuing, and currency stability is also worth pursuing.

The problem is that these two goals are not easy to add together. They must be caught at the same time.

Let's talk about exchange rate stability first.

Globalization makes countless Chinese companies do pnational business every day, and exchange rate stability is of course important.

For exporters, the orders received are mainly foreign currencies, mainly dollars, and the cost of producing or acquiring products is RMB.

It is a long time from signing orders to selling the products that people want.

If the renminbi appreciated against the US dollar during the period, the cost of the exporter would increase accordingly.

For example, the order says 5 dollars and 1 silk shirts. The exchange rate at the time of signing the contract is 1 yuan to 8 yuan, then the exporter can make the cost at 7 yuan per piece and earn 1 yuan for each export 1 pieces.

The new situation is RMB appreciation after the order is signed, for example, the 1 dollar can only be RMB 6 yuan. If the other is not changed, the exporter will pay 1 yuan for each 1 shirts exported.

Conversely, if the renminbi depreciates, exporters will make more money.

At this time, the "bad luck" is the importer: the actual cost and the estimated cost at the time of concluding the import contract, there is no end to it, and the import profits are swallowed up.

Therefore, the instability of the exchange rate makes it impossible for the parties to import and export to rush to contract, because no one is afraid of taking the risk of exchange rate changes alone.

But how can we do business without contract?

A can not tell him what price to buy or sell - how many products, how do you decide how much material to buy, how much manual labor and how many products you produce?

It is clear that the instability of the exchange rate will increase the paction cost of Global trade, and Kos said that the paction cost is higher than a certain point, so that the paction that might have happened could not happen at all.

Trading is shrinking, production is also shrinking, and workers' employment, investment income and government revenue have all been contracted, and the economy has gone down.

This shows that exchange rate stability is, of course, a policy goal worth pursuing, especially in the era of globalization, highly dependent on China's extroverted economy.

Currency stability is also important.

The original currency has no other use, that is, helping to complete the pformation of goods and services, is the medium to achieve pactions.

This is the most basic function of money.

Other monetary functions, including storage, yardstick and so on, can not be seen without media.

Why do people save money?

It's not for future flowers. It's a future trading medium.

Even if there are reports that some people can count pleasure in themselves, that is only possible on the basis of trading media.

If money can not be exchanged for goods and services that can be enjoyed in any case, the amount of money may not be as good as moving stones.

The medium of exchange itself is reliable.

Not only physically reliable, but also reliable.

Think of it. If the monetary reward you earn from your hard work can not buy back the goods and services that can be bought back in hand, can we keep a distance from such a "currency"?

Ordinary people know that the "ticket is wasted" is the currency's currency instability, or more precisely, currency devaluation.

The matter is very small. It is very big, but how serious is it to see how bad it is.

The lesson of monetary history is that currency instability can disturb the expectations of people in the market and increase paction costs unnecessarily.

What is more serious?

Like Mark or Chiang Kai Shek's gold certificates in Weimar, the extremely hairy votes and the governments that issue them will go with the wind.

This is nothing more than a stable exchange rate and a stable currency.

Can we also pursue exchange rate stability and currency stability at the same time?

Logically, it can, and should not be, difficult.

Because exchange rate is only the market price between two or more than two currencies. As long as the currencies exchanged with each other keep their respective currencies stable, the market price between them is stable.

Yes, as long as several currencies are kept stable, exchange rate stability is the inevitable result.

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Historically, the stability of exchange rate between the major currencies has been stable.

This is the "golden age" from nineteenth Century to the beginning of twentieth Century.

According to Aiken Green (BarryEichengreen, 2008), the industrial revolution led to the introduction of the gold standard in Britain in the early 1717, and became the leading force in World Trade and finance.

"This has led many countries to follow the example of the United Kingdom, strive to trade with the United Kingdom and import capital from Britain", so the major countries in the world, including Germany, France and the United States, have implemented the gold standard of money.

Because the value of gold is stable, the currency of each country is only a different name, essentially representing a specific weight of gold.

Under this premise, the "exchange rate" is automatically stable, because if 1 dollars is always equal to 1/20 ounces of gold and 1 pounds is always less than 1/4 ounces of gold, the exchange rate between the US dollar and sterling is really fixed.

As the economist of Austria school advocating the gold standard says, the international gold standard is equal to the same currency used all over the world.

This also means that only in a state of "one world, one currency" can there be a strict exchange rate stability.

But even in the most ideal era of gold standard, gold has a shadow.

This is because the cornerstone of the gold standard, the government and monetary authorities, which abide by monetary commitments and ensure that the currency issued can be exchanged for gold at a price parity, is often shaken by various pressures.

Not every government can strictly abide by the "rules of the game" that gold reserves are the main issue at all times. Many governments are forced to engage in a "credit issue" in emergencies. Although at the very beginning, they also provided government bond guarantees for this part of the excess issued currencies. In other countries, the proportion system was that gold reserves accounted for only a proportion of currencies (such as Belgium, Finland, Switzerland, etc.), and gold reserves accounted for only 35%-40% of the total currency. Other countries such as the United States were troubled by the silver issue, that is, the duplex system.

When commercial banks generally reserve only part of their reserves to deal with the possible withdrawals of depositors, the monetary authority has to act as the lender of last resort, and the foundation of the gold standard is fundamentally shaken.

At that time, when the central bank acted as lender of last resort to help some of the banks run by the reserve banks, the central bank's commitment to money exchange for gold was not a technical problem.

Of course, the final gold price reversal was the first World War, which was scrambled for inflation to raise funds for war, and currency stability was abandoned.

The lesson is clear: the stability of the currencies of all major currencies is the prerequisite and foundation for exchange rate stability.

Once the currency is stable, the exchange rate stability will also shake.

This is not because exchange rate stability is neither important nor significant, but because it can not be achieved.

The emphasis on exchange rate stability is nothing but monetary stability.

Professor Zhou Qi Ren, Professor of National Development Research Institute, Beijing University